Quanta Services Inc (PWR) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Quanta fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please followed the star, followed by the zero.

As a reminder, this conference is being recorded today, Thursday, February 27th of 2003. I would now like to turn the conference over to Ms. Lisa Elliott (ph) of DRG&E (ph). Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us for Quanta Services conference call to review fourth quarter and year-end results.

Before I turn the call over to management, I have a few housekeeping details to go over. If you would like to be on an e-mail distribution or fax list to receive future news releases for Quanta Services or experienced a technical problem and didn't receive yours this morning, please call DRG&E and rely that information to our office. The number there is 713-529-6600.

If you'd like to listen to a reply of today's call, it is available via Webcast by going to www.quantaservices.com and click on the Webcast section, where it will be archived for approximately 30 days, or via recorded instant replay for the next 7 days, 24 hours a day. To use the dial-in replay feature call 303-590-3000 how and use the pass code 524901. That information is also in today's press release.

As you know, this conference call today contains various forward-looking statements and information, including management expectations regarding revenues,, earnings per share, and other results for the first quarter and full year of 2003. These statements are based on the management's beliefs, as well as assumptions made by and information currently available to management. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will have proven to be correct.

For statements and -- such statements are subject to certain risks, uncertainties, and assumptions, including and among other matters, future growth in the electric utility and telecommunications outsourcing business, the ability of Quantas to complete acquisitions and effectively integrate operations of acquired companies, access to sufficient funding to finance Quanta's desired growth, tenants on fixed price contracts, cancellation provisions in contracts, departure of key personnel, as well as general risks related to the industry in which Quanta operates. Should one or more of these risks materialize or should underlying assumptions prove to be correct, actual results may differ materially from those expected. For more detailed information and discussions on these risks, investors are urged to refer to the company's filing with the Securities and Exchange Commission.

Now I would like to turn the call over to Mr. John Colson, Quantas' Chairman and CEO.

Thank you, Lisa. I would also like to welcome you to the fourth quarter and year-end conference call for Quanta Services.

This call is going to be a little different from our past calls. Joining James and me today we have John Wilson, President of Quanta Electric Power and Gas Division, and Luke Spy (ph), the President of Quanta's telecommunications and cable television division. Both John and Luke are industry veterans and leaders, and we could not have two better individuals overseeing Quanta's operations.

For this call, we have invited John to discuss some of the power and gas products and industry trends. On our next call, Luke will talk in detail about the telecom and cable group. I believe this will provide some additional firsthand insight into the efficiencies of our new industry-aligned structure and the initiatives in place.

Today we announce the results for the fourth quarter and full-year 2002. Revenues were $1.75 billion for the year 2002. Revenues for the fourth quarter of 2002 were 432.8 million. Income from operations for the quarter was 11.9 million and 17.3 million pre-charge.

The past year brought many challenges and extraordinary circumstances for Quanta. For example, this time last year we were in the middle of a proxy contest. We've come a long way, and Quanta has persevered through this environment and remains firmly rooted in its vision and is successfully exercising its strategy. It goes without saying that we are glad to embark on a new year with new investment partners, renegotiated bank agreements, more financially sound customers, and the skilled work force responsible for our continued success.

While we don't expect it to deliver an immediate recovery, I believe 2003 is designated (ph) to bring added strength to our business and strategic approach.

Certainly our performance is somewhat overshadowed by the additional charges of the extreme circumstances of 2002 brought. James will discuss the charges from our equity deal with First Reserve, Proxi 5 (ph), legal fees, bank negotiations, and goodwill in more detail in just a few minutes. I'd like to concentrate more on our overall strategy and the trends that we are observing in the markets we serve.

To put this discussion in perspective, revenues by type of customer for the fourth quarter were 58 percent from electric and gas utility customers, 14 percent from telecom, 10 percent from cable, and 18 percent from ancillary customers.

The revenue breakout by customer type for the 12 months ending December 31 of '02 was 53 percent for electric and gas utilities, 16 percent for telecommunications companies, 12 percent cable, and 19 percent ancillary.

Growth continues to be absent from the telecom market, and the recent SEC ruling did not provide the desired clarity surrounding further deregulation of the market, which ultimately impacts RBOC spending and our telecom work.

There are some pockets of activity in this industry, and Quanta is well positioned to leverage those opportunities. Organizations with access to government funding, such as Homeland Security, municipalities, rural utility services, or RUSs, military bases, and college campuses are among the few initiating network buildout projects. In fact just last month the Secretary of Agriculture announced a new rural broadband loan and loan guarantee program. The program makes available 1.4 billion in loans and loan guarantees to facilitate deployment of new technologies in communities with a population of less than 20,000.

We have projects and process in these areas, and will continue to position our services to fully leverage the these opportunities. We are reassured that stability will return to the telecom market by the fact that bankruptcy filings are down over the last several months.

Our cable business will suffer in 2003. As many of you know, Charter's capital spending has been reduced. On the other side, Comcast spending has increased as a result of its merger with AT&T Broadband. The Comcast spending that Quanta will receive will not replace the revenue lost from Charter, so we expect a down year in cable revenues.

Our utility customers face ongoing cash flow issues and outside pressures as well. However, spending continues on a couple of fronts. One, private investment in the transmission system is on the rise. Investors are realizing the investment opportunity arising from the fact that demand for power increases while the state of the power infrastructure deteriorates. To quote the "Wall Street Journal," transmission may now become the most profitable part of the electricity industry.

Generation is not as much of an issue, with the more than 54,000 thousand megawatts of new electric generating plants built last year. The question is delivering the power to the customer. Our current transmission system is now handling twice the capacity it was designed to manage. These congested power lines need upgrading, and projects like PAT 15 (ph) will make that happen.

Few companies have the resources, skills, and workforce to support projects of this scale. Electric utility and gas revenues make up 68 percent of our $980 million 12-month backlog, and in 2002 we had internal growth of 6 percent for the year and 5 percent for the fourth quarter in our electric utility gas group.

Secondly, outsourcing. Even utilities with frozen capital expenditures budgets are realizing and taking advantage of the positive financial impact of outsourcing. Outsourcing comes in many shapes and sizes, depending on the specific goals and circumstances of the utility. Some utilities outsource complete asset management and operations immediately. Others take more of a creeping approach to full outsourcing, where the scope expands over the span of several years. No matter the approach, the benefits to our business are clear -- large, long-term contracts with remarkable growth potential. The advantage to the utility is that they are better able to focus on their core assets and truly reduce their costs, while maintaining customer service.

On the anniversary of our outsourcing partnership with Puget Sound Energy, an objective third party conducted a study to review the impact and progress of our agreement. The study found the following -- since Quanta began the contract, productive work hours have increased by more than one hour per day. A 30 percent cost savings over historic numbers is projected. And service levels continue to improve. And this is only the beginning for Puget Sound Energy and other utilities throughout North America seeking to reduce cost and increase efficiencies.

To give you more detailed insight into our growing customer relationships and our current work in the power and gas industries, I'd like to briefly turn the call over to John Wilson. John brings more than 3 decades of experience in the power industry. Prior to becoming president of the electric power and gas group, John was president of Far Electrical Contractors (ph), one of our largest operating units and a founding company of Quanta - John.

Thanks, John, and good morning, everyone.

Before I talk in detail about our current initiatives, I'd like to provide an update on the implementation of our new structure. January 1st we restructured our operations into two industry-specific operating groups, a telecom and cable group and our electric, power, and natural gas group. Electric power and natural gas group generated approximately $1 billion in revenue last year and consisted of almost 8,000 employees and 15,000 pieces of equipment. The employees, from the senior management to the field personnel, are the sharpest, most focused, experienced, and competitive in the industry.

The power and gas group maintains three senior vice presidents and three regional vice presidents who each report directly to me. They are each very experienced in their field and region, highly regarded in the industry, and familiar with Quanta's mission and our operations. Since each senior vice president overseas no more than 5 operating units, they remain very close to the operation of each business.

This new structure has already proven effective. We have streamlined our management by eliminating two senior positions and promoting individuals from within the unit. This structure has also made it easier to increase efficiencies through equipment sharing and cross-unit sharing. In fact, in a single transaction last week we saved $288,000 on an annual (ph) basis by transporting our (ph) equipment from one unit to another unit instead of renting equipment. Equipment sharing will be a major ongoing initiative to which we will devote our time and attention.

Lastly, the industry-specific structure streamlines our operating units' efforts to work together to expand their business and services provided to current customers and ultimately increase our market share.

As most of you know, we are the only nationwide service provider with the utility experience, strategic thinking, and proven field execution to be able to implement an outsourcing partnership of virtually any size and scope and ultimately increase efficiencies, reduce costs, improve market position of the utility. Following is an overview of projects and progress newly secured.

This past quarter we have initiated work under two new large maintenance agreements and several transmission projects. First, we have significantly expanded our market share in the northeast through two new projects. We secured an annual contract valued at approximately $30 million with Energy East (ph) for overhead and underground distribution maintenance and sub-transmission maintenance and installation. This contract spans three years, with two 1-year options.

Also in the northeast, revenues from a new maintenance agreement with Northeast Utilities (ph) will total approximately $8 million per year for three years. This contract is for distribution, construction, and maintenance, and transmission and distribution maintenance in the New Hampshire area.

Beyond the northeast, demand for Quanta's services continues, especially on the transmission systems. For Arizona Public Service, we have more than 34 miles of transmission projects in progress. This work includes (inaudible) of a 500,000 volt (ph) transmission line and substation, along with reconductoring (ph) of a 230,000 volt (ph) line. We have just secured a large (inaudible) wire reconducting project (inaudible) that stretches from Richfield (ph), New Hampshire to (inaudible), New Hampshire, a total of 440 miles. We have a similar project for a national group confirmed later in the year in Massachusetts that totals 74.

This year we will be constructing a 96-mile bundled conductor 230,000 volt transmission line for South Carolina Electric and Gas, and we continue work on Florida transmission system for long-time customer Florida Power and Line where we are installing two lines over 48 miles between Charlotte and (inaudible) substations.

Also, Quanta will be installing what is probably the largest transmission line under construction in the U.S. today, 180 miles, a 335,000 volt transmission line for Sierra Pacific in Nevada. Word about Quanta's exclusive (inaudible) is traveling quickly, and in the next couple of weeks we expect to announce a large new energized project in the Midwest. We're also reconductoring (ph) more than 9 miles of a 138,000 transmission line in Wisconsin, while the line remains energized.

Also, new and existing customers alike rely on our crews throughout the U.S. in emergency situations. In just the past 2 months we have sent more than 700 employees to help restore power in Kentucky, upstate North Carolina, Louisville, and West Virginia after the most recent ice storm.

Last quarter we did in excess of $27 million worth of emergency restoration work between Hurricane Lily, the ice storms in the Southeast, heavy wind and rain in California, and the typhoon in Guam.

Looking forward we see increased interest in transmission projects as the private investment in our national power group that John mentioned increases, and outsourcing continues to be a primary differentiator for Quanta. We will continue to leverage the superior (inaudible) our operating units have in their region and (inaudible) to increase market share.

Outsourcing can positively impact a utility's bottom line and further position Quanta as the industry leader. At the same time, we continue our thorough evaluation of cost efficiencies, identification of assets, our areas for improvement, and implementation of cost-cutting initiatives.

I know John has discussed these efforts in detail in previous call, and it remains a critically important focus. I hope this overview has helped provide some insight into our current electric and gas operations and opportunities for the future. We will keep you informed as these initiatives progress.

Now I'd like to turn the call back over to John Colson.

Thank you. As I mentioned earlier, you will here directly from Luke Spy (ph) relative to our telecommunications and cable television operations on our next quarterly call.

Our operations in all industries are already experiencing the benefits of our new industry-aligned structure, with streamlined reporting and simplified communication. Our operating units are better able to utilize the resources throughout the Quanta network, share best practices, and access senior leadership. We expect to continue to see a positive bottom line impact to our business from this realignment.

Quanta's new structure has also enabled us to speed up our unit by unit evaluation of costs, including head count, capital expenditures, and equipment utilization, just to name a few. Moving forward, we will continue to closely monitor costs and review operations to determine necessary consolidations and reductions.

In the past we have provided two revenue breakouts for you, one revenue breakout by type of customer, which I presented at the beginning of the call. The other was a breakout of revenue by type of work conducted. The separate breakouts provided some insight into the diverse services we provide for our customers, especially as our utility customers expanded into telecom and cable installation.

Today there is very little variance between these charts because, as we discussed at length, our customers are contracting and focusing on their core businesses and requiring similar focused services from their service providers. In fact, most of our customers are disaggregating non-core business. Therefore, I have not broken out revenue by type of work in today's call. If you would like for us to continue to provide this breakout, let me know; otherwise, we will focus on the discussion of revenue by type of customer.

Our customer diversity remains a strength of Quanta. For example, our largest customer for the quarter made up only 5.5 percent of our revenues. Our top 10 customers for the quarter equal 34 percent of our total revenues, and our top 20 customers made up approximately 48 percent of revenues.

We remain optimistic about our ability to maintain our market share and leverage our core strengths, such as outsourcing strategies and our exclusive robotic arm. Our focus on our core competencies and controlling costs ensures the stability of our business and positions the company to increase market share. In fact, 49 percent of our revenues in the fourth quarter were either cost plus or negotiated.

Now I'd like to turn the call over to James Haddox, our Chief Financial Officer, who will present the financial results for the quarter and the year.

Thanks, John, and good morning, everyone.

Today we announced revenues of 432.8 million for the fourth quarter compared to revenues of 498 million in the fourth quarter of last year. Revenues for the year 2002 were 1.75 billion compared to revenues of 2.01 billion for fiscal year 2001. Net income before charges for the quarter was 4.9 million or six cents per diluted share compared to net income attribute to common stock of 14.3 million before charges or 19 cents per diluted share in last year's fourth quarter.

Before I begin the discussion of our results, I would like to address some of the special charges taken in the quarter and the year. This quarter we booked 6.1 million in charges, which included 4.3 million in charges associated with DAT (ph) amendments and the equity issuance to First Reserve, and 1.8 million in lease termination or severance costs during the quarter. Also affecting our GAAP EPS for the quarter was an $8.5 million noncash beneficial conversion charge.

In mid-October we entered into a contract to issue up to 33 million shares to First Reserve at $3 per share, which was an above market price. Issuance of 24 million of the shares was conditioned on bank covenant relief and ultimately closed on December 20th when our stock was trading at 3.25 per share. GAAP rules require that we book a noncash benefit to conversion charge for the 35 cent per share differential. This charge had no effect on the assets, equity, or operating income of the company.

The discussion that follows excludes the charges I just described and the charges described during our third quarter call. Our gross margins were 13.6 percent for the quarter compared to 13.5 percent gross margins for the third quarter of '02. Utility and gas margins were 15.5 percent compared to 13.3 percent in third quarter of '02. The third quarter utility margins were abnormally low due to cost overruns being incurred on a major job in Nevada and due to excessive rain during the third quarter. Conversely, we obtained storm work, which carries higher margins, as a result of severe weather in the fourth quarter.

Telecom margins declined from 11.4 percent in the third quarter to 6.9 percent in the fourth quarter due to reduced revenues during the quarter and losses being incurred on a large telecom job. Cable (ph) margins improved from 15.6 percent in the third quarter to 23.5 percent in the fourth quarter. Cable margins during the third quarter were unusually low while we were adjusting our cost structure to compensate for lower receives from Adelphia. We expect lower cable margins during the first quarter of '03 than in the fourth quarter of '02 due to bad weather and due to reduced revenues from Charter.

We ended 2002 with precharged overall operating margins of 4.3 percent for the year. Our precharged operating margins were 4.1 percent for the fourth quarter compared to 3.9 percent during the third quarter of '02. Our G&A expenses declined to 41.1 million from 42.3 million for the third quarter. This decrease was due to head count reduction and facility closures related primarily to our telecom contractors.

EBITDA for the quarter was 30.7 million or 35 cents per diluted share compared to EBITDA of 52.5 million or 67 cents per diluted share in last year's fourth quarter. Appreciation and amortization expense was 15.2 million for the quarter and 60.6 million for the year 2002. EBITDA before charges was 133.9 million or $1.66 per diluted year for fiscal year 2002.

Cash flow from operations totaled approximately 59.5 million for the fourth quarter and free cash flow totaled approximately 50 million. Cash flow from operations for the year 2002 totaled 121.5 million and free cash flow for the year totaled 72 million.

Capital expenditures totaled approximately 9.7 million for the fourth quarter, primarily related to our utility companies, and total 49.5 million for the year. This compared to approximately 85 million spent last year. We are projecting cap ex for 2003 to be approximately 50 million.

Our current backlog of work stands at $980 million. This amount represents work to be completed during the next 12 months and includes work under lump sum contracts and our estimation of work on the long-term unit price or cost plus (ph) contracts. This represents an increase in backlog during the quarter of $47 million. The increase in backlog is due predominantly to increases in our utility backlog, however, we also experienced an increase in telecom backlog. We experienced a decease in backlog in our cable business as Charter's spending has slowed down.

Our days sales outstanding, or DSOs, and accounts receivable in excess of billings are now at 86 days compared to 92 days at the end of the third quarter of 2002 and compared to 103 days last year at this time.

During the fourth quarter we received $99 million in new capital from First Reserve and issued approximately 33 million shares of common stock. Related to availability of capital at 12-31-02, we had zero bars under our credit facility and outstanding letters of credits totaling about $72 million. We amended our credit facility during the fourth quarter to obtain more flexibility in our covenants.

We currently, as of today, have additional borrowing capacity of approximately 134 million under the credit facility, and have approximately $50 million in cash on hand. At 12-31-02 the company had a debt to total cap ratio of 36.4 percent. We are currently in compliance with all loan covenants, and we expect to continue to be in compliance based on our forecast for the foreseeable future.

We expect to complete our stock option exchange program during March of '03. If all eligible options are exchanged, this will result in the issuance of 3.3 million shares of restricted stock, which will vest over a three-year period. These shares will be included in our EPS calculation beginning in March. In addition, we will recognize an annual noncash compensation charge of approximately $3 million during the three-year vesting period of the restricted stock.

We expect revenues for the first quarter of 2003 to total between 350 million and 370 million, and operating margins for the first quarter to be from 2 percent to 3 percent. We're using approximately 112.3 million diluted shares for our calculation of EPS. These forecasts would result in break-even EPS and net income for the first quarter.

For all of fiscal year 2003 we are forecasting revenues to be between 1.65 billion and 1.7 billion. We expect operating margins for the year to be between 5.5 and 6 percent, a tax rate of between 42 percent and 44 percent, and average shares outstanding to be about 114 million. This would result in EPS of between 28 cents and 36 cents.

I know this has been expressed previously on the call, but I'd like to reiterate that Quanta was faced with some almost insurmountable challenges in '02, yet we maintained our integrity, our vision, our focus on performance, and have emerged a stronger company for it. We're proud of our organization and look forward to this new year. I hope you share our confidence in the promising future ahead for our company.

With that, I'll turn it over to the operator to open the call for questions.

Thank you, sir. At this time we will begin the question and answer session. If you have a question, please press the star, followed by the one on your pushbutton phone. If you would like to decline from the process press the star, followed by the 2. You will hear a 3-tone prompt acknowledging your selection. If you are using speaker equipment, you will need to lift your handset. Please ask one question and one follow-up question and re-queue for additional question.

One moment please for the first question.

The first question is from Mark Hughes. Please state your company name, followed by your question.

SunTrust Robinson Humphrey. Good morning. I saw a lot of shares traded yesterday. Was there any management participation that you can talk about, and any share purchase?

(inaudible) has been negotiating to sell its Quanta stock in a private placement to a third company. The large block trade posted yesterday was related to that transaction.

Any management participation?

No.

Okay. And then my follow-up question, the -- in the utility business, looks like a nice sequential increase -- depending on the way you categorize it, either by way of revenue or customers. Could you give us a sense of the sequential growth there and then your general view about the state of demand in the industry in the gas and electric utility side?

While James is looking at some growth numbers for you, I'll talk in general. We think that the electric power business is going to be fairly strong for us in 2003 because of the two things that we talked about. Mainly, we are beginning to finally see some investment in the transmission system, and outsourcing continues to be a major focus of utilities as they are having some struggles of their own and as they try to reduce their cost. One way they can truly reduce their cost while maintaining service to their customers is by outsourcing. So what they are not doing is increasing budgets or increasing their spending but they are spending more of their dollar on outsourcing and less -- doing less work in house. James ...

Yes, just the numbers, Mark, for the third quarter, utility and gas revenues were 232 million, and in the fourth quarter they were 258 million.

Thank you very much.

Thank you. The next question is from Brad Deesing (ph). Please go ahead and state your company name followed by your question

Hi (inaudible), David Jay Green. I guess I was a little surprised to see that your first quarter guidance for revenues was sort of sub 400 million. I just was wondering what is sort of behind that?

Well, primarily we're having a very tough winter. We've had -- contrary to the fourth quarter, where we had really terrible weather which caused storm breaks in January and February, as you know, we have had a lot of snow storms and a lot of rain across the country, and very little really bad weather that would take down power lines. So we have taken into consideration January and some of February's weather in that forecast. As you know, there is some seasonality in our business. That was not true in the past because we had sequential growth quarter after quarter after quarter. But in normal times there is seasonality in our business, and that's what you're seeing.

Okay. And then, any update on receivable issues, whether we have any exposures over the next 12 months, whether it be Charter or any other large receivable issues?

Our receivable from Charter now -- at year-end our receivable from Charter was about $20 million, and now that number is down to somewhere between 5 million and 7 million. Charter has been paying very well recently.

The only other large -- well, there's two large receivables on the books right now. One of them is from Adelphia, and Adelphia, that receivable totals about 29.5, say 30 million. We have liens on their system. Most of our work was done on the LA system, which we feel reasonably comfortable with from a value standpoint. And the other receivable that we have on our books was the one that we wrote down significantly in the third quarter, which was the IPP (ph) plant, the Lanville (ph) gas to energy (ph) plant, so we wrote down that amount for about $20 million for three plants, which we have a security. We have those plants as security for those. So we feel relatively comfortable with those at this point in time, too.

Okay. Thank you.

Thank you. The next question is from Alex Rygiel. Please state your company name.

Friedman Billings Ramsey. Thank you. Could you go through the list of your top 5 customers for us?

Yes, I can. Our number one customer for 2002 was Charter Communications. Number 2 customer was Puget Sound. Number 3 was Entergy Services. Number 4 was Southern California Edison, and number 5 was Reliant Energy, also called now Centerpoint.

Just to clarify, that was for the full year, not just the fourth quarter?

No, that was for the fourth quarter.

Thank you. And could you quantify the revenues that you received from Charter in 2002 so we can get an understanding of magnitude?

Yes. Let's go ahead with questions. I'll have to look that information up.

Okay.

I don't have it right at my fingertips.

Could you circle back and give us a breakdown of your backlog mix by business line?

You want to do that, James, while I'm looking for this?

Year to date pro forma revenue for Charter was 97.7 million. That was for the whole year of 2002.

Breakdown of backlog by industry is 667 million for utility and gas, 126 million for telecom, 71 million for cable, and 116 million for ancillary.

Would you like the breakout of the top 5 customers for the year?

That would be great.

Okay. Number one of course was Charter. Number 2 was Puget Sound. Number 3 was Entergy Services. Number 4 was Southern California Edison. And number 5 was Ericsson. A lot of the same people in the quarter as well as the year.

Sure. You referenced a telecom project in the fourth quarter that you lost some money on. Can you give us a little more detail on that?

Just give me just a second.

Okay.

Give me just a second. Can we move on, and I'll cover that in just a minute.

The next question is from Ted Grossbeck (ph). Please state your follow name.

Ted Grossbeck, Grossbeck Investment Management. I didn't catch the percentage breakout you gave for revenue and by industry group for the year and for the quarter.

Okay. As pro forma revenues by type of customers, the fourth quarter, electric utility and gas customers were 58 percent, telecom was 14 percent, cable 10 percent, C&I, which is commercial and industrial, 7 percent, transportation 5 percent, other was 6 percent.

And for the quarter?

That was the quarter.

Okay. And for the year?

For the year, electric and gas was 54 percent, telecom 15, cable television 12, transportation was 4 (ph), C&I was six, and other was 9.

Thank you.

Thank you. The next question is from Ram Kasargod. Please state your company name followed by your question.

Morgan Keegan. Two questions. The realignment that you're doing, can you give us a perspective on what that means in terms of head count, the utilization in those two units?

Yes. I think that it will result in additional head count, but I think more importantly, as our revenues pick up and as the future looks better, we'll be able to hold our head count down going forward because of the streamlined structure.

And then, your capacity utilization in those two units right now?

There is an oversupply on the telecom and cable side. It's difficult to say exactly what those are because we transfer assets across operating unit lines into other segments of the business. But approximately telecom and cable side were probably total around 70 percent, on the electric power side, probably 90 percent.

And then finally, it looks like you done a great job running your business in '02. Is there any balance sheet targets for '03 in terms of your debt levels or other issues?

Well, first of all, I should continue to say this in regard to capacity. Our workforce is a variable workforce, and when they are not working, they are laid off. But what I was talking about was what we think of our executive and our asset base. I think we have capacity to do a lot more work than we're doing. And, you know, it's - this streamlining of the system is part of the goal that we set to reduce overheads to 38 million, and I think this quarter they were something like 41 million. So we have got a ways to go yet. But this new structure I think will certainly help that.

James, do you want to answer his question in regard to the balance sheet?

The balance sheet targets on the debt level?

All around, what do you hope to do with your balance sheet in '03 relative to '02?

I hope we make significant progress on our receivables and continue to get our DSOs down and build up cash. We effectively have no debt outstanding right now under our credit facility. The senior notes are $210 million. They start to mature in 2005, and the converts, 172 million, matures in 2007. So in the meantime, we're just generating on building up cash.

Okay. Thank you.

Thank you. The next question from Quint Slattery (ph). Please state your company name followed by your question.

Hi guys. Cornell Fund (ph). Two questions, just the (inaudible) that came out yesterday, I was (inaudible) are they now fully unlocked and done? Do they not own anymore shares of you guys? And then a follow-up question.

You are very weak on our phone here, but I think your question is, is this all of (inaudible) shares, and the answer is yes, they should be completely out of our stock.

And just in terms of insider buying, are you guys going to be buying back shares coming up, or what should we look for on that side?

I don't anticipate that the company will actually (ph) get a program buying back shares at this point in time. We haven't ...

We're prohibited from doing that under our credit agreement.

I meant more in terms of the management buying back shares?

Management is a large holder of this company. I think I'm probably the fourth- or fifth-largest, maybe third-largest holder of stock in the company. I think that First Reserve is number one and Third Avenue is probably the second-largest, and then I'm in there somewhere like that, so I have a significant amount of stock to keep me motivated.

Okay. Thank you. Congratulations.

In answer to your question about the telecom job, we had a large job that's an engineering related job that we're doing for the Army Corps of Engineers that that job will finish up sometime in the first half of this year, but as we evaluated the job we determined that we were going to lose money on the job and we took the entire loss in the fourth quarter, and that amounted to about 1.5 million or so.

Thank you. Ladies and gentlemen, is there any additional questions, please press the star, followed by the one at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pushing the numbers.

One moment please for the next question.

And the final question is from Mark Hughes. Please go ahead.

Thank you. Is there an internal growth on the utility side of the business assumption you've got for this year that you can share?

We're not projecting significant internal growth in the utility business. Mark, we're not projecting any big wins on the transmission side, any of those $100 million or $200 million projects or any of those lifesized outsourcing projects. We fully expect to get some of those, but they are not built into our estimate. So if we get those we'll have significant internal growth. Right now we're just projecting nominal growth on the electric power side.

Is that to say that the cable and telecom business is probably declining a little bit and utility flat, or utility up a bit with those others declining a bit more?

Cable definitely will be down. I think telecom will be flat to slightly down, and utility will be up a bit.

You talked about a 30 percent documented cost savings on the Puget Sound. Could you go into a little more detail on that? Any possibility of sharing some documentation with us at some point?

Utilities in general are very sensitive about outsourcing information. I think, you know, we talked last summer about an outsourcing deal that we were working on. And as it turned out, we couldn't announce the name of the company, and Puget Sound is, as many utilities are ,sensitive to that information. But that was a survey conducted by a third party, and I think that what I can share with you is some information that Puget Sound has talked about in various presentations, and it indicates the same number.

All right. Thank you.

Also, as a follow-up, the guys here in the room want me remind everyone out there that Haddox, Luke Spy, and John Wilson are also significant shareholders in Quanta, and Luke k and John recently received another 50,000 shares, I believe, apiece. So they wanted me to be sure to point that out.

We do have one more question. The next question is from John Kojay (ph). Please state your company name followed by your question.

Good morning. First Albany. I'm assuming that the fourth quarter interest charge included the debt amendment charges. Is that correct? And can you give us an interest expense number for 2003? And lastly, I'm sorry, I did miss the share count number for next year in tax rate.

Yes, the interest charge in the fourth quarter did include -- I think the number was about 400,000, 450,000 of charges related to the debt amendment and write-off of previously capitalized amendment charges. The interest number for 2003 should be somewhere in the 32 million to 33 million level. And the share count that we used for the 2003 estimate was 114 million shares.

And I'm sorry, the tax rate also?

42 percent to 44 percent.

Thank you.

Thank you. Gentlemen, please continue with any closing statements.

All right. I'd like to thank again all of you for participating in our conference call this morning. We appreciate your questions and ongoing interest in Quanta. We will continue to communicate with you as we drive the outsourcing trends, continues our cost-cutting initiatives, and implement our new industry-aligned structure. Thank you, and goodbye.

Thank you. Ladies and gentlemen, this concludes the Quanta fourth quarter earnings conference call. If you would like to listen to a replay of today's conference call, please call 303-590-3000 with access code 524901. Once again, 303-590-3000 with access code 524901.

Thank you for participating. You may now disconnect.